The number of Americans that live paycheck to paycheck has increased by about 5% from 2016 to 2017, and it now stands at just under 80% according to career builder. Not only are an increasing number of households living check to check, but about 71% of Americans also have some form of their debt to their name during 2017. Both of these figures bode ill for families or individuals.
Living check to check is bad enough. This means that if anything changes in the households financial picture, whether it is an unexpected bill (car repair, medical, etc.) or a loss of job or reduction in income, this can case the family to fall into a hardship. Even just getting sick can cause someone to miss a payment on some form of bill they may have.
Or what if the economy slows down or falls into a recession, as will eventually occur as we have been without a recession for about 8 years. This could cause less job opportunity and/or layoffs across the country. When that occurs almost all Americans are harmed in some way.
So not only is living paycheck to paycheck causing families to take on extreme risk due to the factors above, but combine that with increasing debt levels in 2017 and the chance for something to go wrong is that much later. As what if the economy slows down, a job loss (or cutback in hours) takes place, and the household has one of those long term car loans? How can they pay that debt when all of this happens? Maybe they won’t be able too, and lose their car or form of transportation.
What should households be doing?
Almost every single expert recommends that you save as much as six months of their salary. While this may sound so difficult to do, it can be done over time. Just save X percent of your paycheck each and every pay period, and put that money into a bank account. Before you know it you will have a week saved up, then two weeks, then a month…up to 6 months! If you need help in doing this, then try talking to a free credit counseling agency so you can create a plan.
Having that type of emergency funds can help reduce the risk from any of the issues mentioned above. It is also great to save money now (up to that 6 months) while the economy is strong. As we progress throughout 2017 the job market is booming, with unemployment in the low single digits. It is just a matter of time before things slow down, and maybe even a recession starts.
It is recommended to have 6 months in case an unexpected expense comes up. Or if the employment market changes. As when you have some savings to your name, there is no longer a need to rely so much on living paycheck to paycheck, and you can break out of that pool that 80% of Americans currently fall into.
In addition, while the economy is strong and interest rates are low, pay down some debt. Or eliminate it if possible. So not only should you be building an emergency savings, but also pay down bills, debts, and other living expenses. The previously mentioned credit counselors can help you on this process too. Get ahead now, while things are going well, and stop living check to check.